In frog erythrocytes, the loss of membrane-bound Beta-adrenergic receptor sites during isoproterenol-induced desensitization is due at least in part to an internalization of the Beta-receptor sites. This receptor internalization is characterized by an increase in the number of soluble Beta-receptor binding sites. Experiments using various lysosomotropic drugs suggest that these soluble receptor sites are released from the endocytic vesicles into cytoplasm due to partial hydrolysis by lysosomal enzymes. Moreover, subcellular fractionation of erythrocytes by Percoll gradient centrifugation revealed that at least one species of lysosomes retains Beta-receptors and this receptor retention in lysosomes is enhanced when cells become desensitized. Treatments of cells with various inhibitors of calmodulin, a calcium binding protein, caused a time- and dose-dependent reduction in the extent of Beta-receptor internalization and down-regulation. These data suggest that calmodulin is involved in regulating the clustering of Beta-receptors in coated pits or vesicles which may be catalyzed by transglutaminase. Evidence is also presented that internalized Beta-receptor sites are recycled to the plasma membrane to restore the surface receptor density and functional sensitivity that are attenuated during desensitization.